In Final Tax Push, GOP's Best Shot Is Extending Industry Breaks

(Bloomberg) -- House Ways and Means Committee Chairman Kevin Brady has given up on an additional round of tax cuts. Now, the only tax item he might be able to get passed this year is something he hates: the annual renewal of prized industry tax breaks.

Brady released legislation Monday night featuring a grab bag of unfinished tax business, including extensions of some breaks, fixes to last year’s tax overhaul, changes to retirement savings and a revamp of the Internal Revenue Service.

In Final Tax Push, GOP's Best Shot Is Extending Industry Breaks

With less than a month left in the current Congress and lingering acrimony over last year’s tax bill -- which passed without a single Democratic vote -- most of Brady’s provisions are unlikely to garner enough support in the Senate, where at least nine votes are needed from Democrats. The Texas Republican has only a few weeks left in his post before the House flips to Democratic control.

Many of the extenders however, have passed on bipartisan votes before and have been endorsed by some Senate Democrats. It’s an ironic twist for Brady, who earlier this year pledged to get rid of any remaining tax extenders following the tax overhaul and make any necessary ones permanent.

“I think at the end of the day, the clock ran out on more comprehensive reforms,” Brady told reporters Tuesday. “The transition to Democratic majority in the House shortcut some of the discussions we thought we might be able to have.”

Passing extenders is a far cry from the Tax Cuts 2.0 plan Republicans campaigned on before the midterm elections. They called for making permanent the rate cuts for individuals and pass-through businesses. The loss of the House effectively killed any chance for 2.0, which was estimated to add more than $630 billion to the deficit over a decade. The current plan would cost substantially less: $54.7 billion over 10 years, according to an estimate from the Congressional Budget Office released Wednesday.

Senator Chuck Grassley of Iowa who will oversee the tax-writing Finance Committee next year, said the expired tax breaks may be the only thing that has the political momentum to move this year. Representative Kevin McCarthy of California, the incoming House minority leader, said GOP leaders discussed addressing tax extenders before year’s end during a meeting with President Donald Trump on Tuesday afternoon.

“Everyone has an interest in getting some kind of extenders bill,” said Senator Bob Casey, a Pennsylvania Democrat who’s a member of the Finance Committee.

Other members of the tax panel including Senator Maria Cantwell, a Washington Democrat, and Senator Ben Cardin, a Maryland Democrat, said in interviews that they were supportive of backing tax extenders.

Electric Vehicle Credit

Brady’s legislation calls for extending certain temporary breaks that have expired, such as credits for railroad track improvements, biodiesel and renewable diesel fuel, and electric scooters. Since most of the benefits expired in 2017, an expedient extension is necessary for taxpayers to be able to claim the breaks during the filing season next year.

The proposal doesn’t include an extension of a $7,500 tax credit for purchasers of electric vehicles, which is still under consideration in the Senate. The credit was highlighted on Tuesday when Trump said he was looking at ending all “subsidies” for General Motors Co. following the company’s announcement that it would layoff workers and close plants.

The current head of the Finance Committee, retiring Senator Orrin Hatch, questioned Trump’s threat. The Utah lawmaker “generally does not think tax policy should be made in retaliation for business decisions,” Nicole Hager a spokeswoman for the panel, said in an email. 

Tax Law Corrections

Senate Republicans were relatively receptive to Brady’s entire package. “I think what the House has done a lot of things we agree with,” said Senator John Thune of South Dakota, the third-ranking Republican in the chamber. “I think the House’s draft is in the right direction.”

Technical corrections to the tax law -- such as mistakes that affect retailers and restaurants making improvements and sexual abuse victims who sign nondisclosure agreements -- will require concessions from Republicans. Democrats, still upset that the tax overhaul passed on solely GOP votes, are reluctant to support fixing any errors in it, partly in an attempt to demonstrate how the law is misguided.

While some Senate Democrats have signaled they want some glitches in the law fixed, it’s still unclear what they want in return for backing any changes -- and if Republicans would agree to it.

Senator Bob Menendez, a New Jersey Democrat, said “No, not now,” when asked if his party would be willing to negotiate with Republicans on corrections.

Representative Richard Neal of Massachusetts, the incoming Ways and Means chairman, said he would encourage Senate Democrats to reject the bill.

GOP ‘Wish List’

There are also differences between the House and Senate retirement proposals, as well as multiple versions of the legislation restructuring the IRS. As other more pressing issues, such as financing for Trump’s border wall, monopolize the conversation, lawmakers could run out of time to negotiate the smaller tax details before Congress leaves for the December recess.

Senator Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said he thought Brady’s legislation, which caught House and Senate Democrats off guard, was a repeat of last year’s tax process.

“My take on the Republican view of bipartisanship is they go off and do everything they want, you know, everything that’s on their wish list,” Wyden said. “Then their strategy is to see if they can lure a few Democrats into coming over. That didn’t work before and it’s not going to work now.”

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